World Beta Blog

I have to admit. I read this blog as much for Meb's content as I do for the insite that 'j'adoube' often brings.

Mike in GA

insight, lol

MebFa prediction of January:

>>That having been said, and this is probably an Occam’s 5th Grade level observation, but is there anyone out there that believes that if/when gold breaks through the 1000 level that it doesn’t zoom straight to 1300 or 1500? Once that huge psychological barrier of 1000 is broken (it has already been tested once) I think the sky is the limit.<<

OK, gold has just broken through the $1,000 level, closing at $1,002 on Friday. So according to your forecast, your trade is now ON, right? And gold should scream higher in the coming, what, weeks? months? to the 1300-1500 level. (Would be nice to see an affriming post on this.)

Yes, there is someone out there who does not believe. Me. And Michael Santoli, in this week's Barron's. Here's an excerpt:

>>WHAT TO DO NOW WITH AN ounce of gold -- priced at more than $1,000, exchangeable for exactly 106 shares of General Electric (GE), equivalent to more than 25 barrels of oil, a gold/oil ratio that has rarely been exceeded for any length of time during the past 35 years?

On the one hand, the logic behind owning some gold has rarely been more intuitive, as world governments threaten to deplete the global ink supply in their money-printing efforts, and faith in financial assets has been all but broken. The price action confirms this logic for now, with gold's settlement Friday at $1,002 per Troy ounce, making for a 16% gain in the past month.

The fact, too, that the metal has been able to log such gains even with a firm-to-rising dollar is encouraging the true believers, who always bristle at the notion that gold merely rides the opposite end of the seesaw as the greenback. Yet, is it not a bit worrisome, at least short-term, just how popular gold has gotten in a hurry, and how an air of inevitability attends the commodity's ascent as the beneficiary of market, economic and geopolitical calamity?

Granting that contrarian positioning often takes a long time to work in strongly trending asset markets, the wild flocking to the SPDR Gold (GLD) exchange-traded fund -- which routinely turns over $2 billion worth of trading a day -- ought to give slight pause. The GLD, which holds the real stuff, is about the biggest buyer of physical gold out there, its stash now topping 1,020 tons, up 20% in a month.

The Market Vane traders' bullish consensus reading on gold recently approached 80%. Famously, the minters of gold coins haven't been able to slake public demand. Radio ads are all over the AM band these days featuring commodity-brokerage houses talking up the appreciation potential of gold. (On the other hand, the ubiquitous and obnoxious www.Cash4Gold.com ads prod cash-strapped folks to come in on the supply side.)

The can't-miss mentality is hinted at in the remarks of commentators quoted Friday afternoon in a Dow Jones Newswires market dispatch. "We're seeing investors rush into gold as a crisis of confidence continues to emerge," said Ralph Preston, senior market analyst with Heritage West Financial. "Once these things start running, it's the herd mentality."

And this: "There really is no other place to go," said Leonard Kaplan, president of Prospector Asset Management.

Really? No other place?<<

Look, as someone who bought GDX (the miners ETF) in the high teens a few months ago, and has watched the whole world jump on the bandwagon ever since, I'd say this is now a crowded trade, for sure. Gold is hitting $1,000 probably just in time for at least a financial assets countertrend rally, one that sends gold back down the ladder. Credit markets are improving substantially. If I had to pick the smarter money -- credit traders vs. gold buyers -- that's an easy one. And while credit still labors under a sharply bearish consensus, gold buyers are in giddy territory now.

I think gold gets to $1,300 to $1,500 -- and beyond -- eventually. But the close over $1,000 likely will not be some off-to-the-races trigger, as you suggest.

Question: What specific time-bound contraints would constitute success or failure of your forecast?